What Is a Tax Lien? What Taxpayers Should Know
A tax lien does not mean the IRS has taken your property. But it does mean the IRS has a legal claim to it.
If you owe the IRS, you may hear the words tax lien and tax levy used interchangeably.
They are not the same thing.
Understanding the difference can help you figure out what is happening with your tax debt and what you need to pay attention to next.
What Is a Federal Tax Lien?
A federal tax lien is the government's legal claim against your property when you have an unpaid federal tax debt.
Generally, the lien arises after the IRS assesses the tax, sends you a bill explaining what you owe, and you don't fully pay the debt within the required time.
The lien can apply to property you currently own as well as certain property or rights to property you acquire later.
That can include things such as:
Your home or other real estate
Your vehicle
Financial assets
Business property
Accounts receivable
Certain income or property rights
If you're a business owner, this matters because a federal tax lien can attach to business property and rights to business property as well.
What Is a Notice of Federal Tax Lien?
You may also hear about a Notice of Federal Tax Lien (NFTL).
The notice is different from the lien itself.
The IRS may file the notice in public records to alert creditors that the government has a legal claim against your property. A filed notice can affect your ability to obtain credit and may make selling or borrowing against property more complicated.
If you receive a notice from the IRS about a federal tax lien, don't ignore it.
Read the notice carefully and pay attention to any deadlines or rights explained in the letter.
A Tax Lien Is Not a Tax Levy
This is one of the most important distinctions to understand.
A lien secures the government's interest in your property. A levy actually takes property to satisfy the tax debt.
So if you receive information about a tax lien, that does not automatically mean the IRS has taken money from your bank account or seized your property.
However, an unpaid tax debt can involve additional collection actions depending on your circumstances.
That's why understanding where you are in the process matters.
Can a Tax Lien Go Away?
In some situations, yes but the answer depends on the circumstances.
Paying the tax debt in full is generally the best way to resolve a federal tax lien, and the IRS says it generally releases the lien within 30 days after the debt is fully paid. Certain circumstances may also allow for a withdrawal of a Notice of Federal Tax Lien.
There can also be appeal rights related to the filing of a Notice of Federal Tax Lien.
The important point is this:
Don't assume you know what your options are based on one IRS notice or something you read online.
Your tax years, balance, filing history, financial situation, and where you are in the collection process can all matter.
What Should You Do If You Think You Have a Tax Lien?
Start by getting clear on your situation.
Gather your IRS notices, determine which tax years are involved, and find out what balance the IRS says you owe.
Then ask yourself:
Do I understand what the IRS is doing and what my next step should be?
If the answer is no, that's a good reason to get help understanding your options.
You don't have to wait until the situation becomes more serious before getting clarity.
Get Clear on Your IRS Tax Situation
If you're dealing with IRS tax debt, a lien, notices, or another collection issue, start by getting organized.
I've created an IRS Tax Debt Self-Assessment Checklist to help you identify the key information about your situation and determine what you need to look at next.
Download the IRS Tax Debt Self-Assessment Checklist
[DOWNLOAD THE IRS TAX DEBT SELF-ASSESSMENT CHECKLIST]
You don't have to figure out the entire IRS process by yourself.
Start with understanding what you're dealing with. From there, you can make a more informed decision about what to do next.
